Mining Cadastre & Licensing


6. Industry view

The relationship between licensing methodology, security of tenure and attractiveness for investors

The key factor of the attractiveness for the investments towards the mining sector is the security of tenure, to ensure the exclusive right of titleholder to    access to the exploitation license at the end of the exploration phase. No company will invest in exploration if this right to exploit the discovered resources is not secured.

In the majority of countries such a transition implies that titleholders, after all investments realised during exploration, must develop new economic efforts to prepare operational plans (technical, environmental and social) before being granted the right to exploit, and such plans should be a part of the application dossier to the mining right. At this point, two key difficulties arise:

  • How project planning is financed

  • The implicit risks of subjectivity and discretion during the evaluation, because it is extremely difficult to establish predefined objective criteria to evaluate the operational plans. Any type of parameter would need detailed adaptations to each type of project, deposit, substance, or process, but the number of technical variables and parameters to be introduced is so enormous that it is impossible to guarantee equal conditions for all applicants without discrimination.

For this reason, many projects became blocked at the end of the exploration phase, because if the titleholder does not have its own resources to prepare operational plans, the external investor does not risk the capital until the title has been granted, and the availability of the operation plans is a precondition for granting.

So what is the answer to this dilemma? The key question is whether the evaluation of the operational plan should be done before or after the licence is granted. The question has been answered in some countries introducing a clear differentiation between "property" and "activity" (as explained above), trying to eliminate the potential discretion for licensing in their mining laws by:

  • Introducing automatic right to transform the exploration licence into a mining licence for titleholders that fulfil all their obligations.

  • Evaluating the operational plan after granting.

  • Removing any requirement for a mineral right applicant to demonstrate either the existence of a commercially viable deposit, or the applicant’s financial and technical ability to carry out a work program.

  • Eliminating or standardising the work, investment and/or production requirements.

  • Limiting the grounds and procedures for the cancellation of mineral rights.

These kinds of licensing rules have been welcome by the private sector and there are clear indications that countries where they have been implemented are more attractive for investments, especially during the recent years when metal prices are low and investments are more selective.  

 

However, mining companies recognize that practical implementation of these principles is not simple and although they work well in countries where they have been adopted, they cannot necessarily be directly exported to other geopolitical contexts where traditions, the structure of mining sector, and the general legal framework are very different. In fact, in the most of the countries today it is still implemented the traditional methodology for granting, i.e. application for mining licences including the operational plans as a prerequisite. In this general framework, mining companies acknowledge the implementation of an efficient cadastre where the licensing methodology can be simple, fast, transparent and predictable and where subjectivity and discretion can be minimised. For this reason, normally, mining companies are not reluctant to pay annual rental fees which are relatively expensive (see Table I) in return for an efficient cadastral management.